Final Rule under the US Terrorism Risk Insurance

27 October 2003 No.03-010

We refer to our previous circular No.02-018 of 17 February 2003 regarding the P&I War Risks Cover and the US Terrorism Risk Insurance ("TRIA"). We would like to inform the Members of further developments in respect of the regulations implementing the TRIA.

On 25 February 2003 the US Treasury Department ("Treasury") issued an Interim Final Rule ("IFR"), in which "insurer" is defined as any entity approved or accepted for the purpose of offering property and casualty insurance by a Federal agency, but only to the extent of such federally approved commercial property and casualty insurance offered by the insurer. This meant that, for the P&I Clubs, the TRIA indemnity applies only to terrorism losses from those US-flag vessels which are financed by the US Maritime Administration ("MARAD") or eligible to benefit from a loan guarantee by a MARAD program. These constitute only about 0.5% of the vessels calling at US ports.

The International P&I Group ("Group") submitted comments on the IFR stressing therein that it believed the Treasury had chosen to restrict the application of the TRIA Program to only a few vessels in a way that Congress could not have meant. The Group requested the Treasury to drop this restriction so that all the Group's vessels while in US waters could have the same TRIA indemnification for terrorism exposure regardless of flag.

On 8 July 2003 the Treasury issued a Final Rule. The Treasury acknowledged that a "broader" interpretation of federally-approved insurers' role is possible under the Act, but repeated their assertion that the narrow rule is necessary for the effective and efficient administration of the TRIA Program. As far as P&I insurance was concerned, no change was made to the scope of the TRIA coverage as originally put forth in the IFR. Consequently the Treasury has determined that the TRIA indemnification applies only to losses from MARAD vessels. As there is little possibility that the Treasury will implement any changes, the Group feels that the only course of action is to do nothing for the time being.

However, if a vessel entered with the Association was involved in an act of terrorism, as defined in the TRIA, causing P&I claims, the Association's P&I War Risks Cover would respond to these claims subject to the Association's Rules/Special Clause in the same way as for the other Group Clubs. Therefore, the above developments will not cause any inconvenience for the Members.


1. The Association's position under the TRIA
The Association does not fall within the definition of "insurer" in the TRIA, because it is not approved by MARAD to offer P&I insurance for MARAD vessels.

2. P&I War Risks Cover and the TRIA
At the meeting of the Association's Board in February 2003, the Directors considered the availability of the P&I War Risks Cover in the reinsurance market and the possibility of indemnification under the TRIA Program and decided that the limit of this Cover for the 2003 policy year should be increased from US$200 million to US$400 million each ship, any one accident or occurrence and that the premium of the War Risk Cover should include an amount for the cover for claims arising from an act of terrorism as defined in the TRIA and that this should be at the rate of US cents 0.25 per G/T. All of the Group Clubs adopted a similar resolution and collectively placed the reinsurance of the P&I War Risks Cover for this policy year. This reinsurance applies regardless of whether or not the loss would qualify under the TRIA Program. Therefore, it makes no difference to the Member whether or not their vessels are outside the TRIA arrangements.